Will Indonesia’s improving macro picture save Petra Foods?

According to a report by OCBC, over the past three policy meetings, Bank Indonesia (BI) has slashed its benchmark interest rate from 7.5% at the start of the year, to 6.75%. Other rates such as lending facility rate were also cut. Further, there are expectations that economic reforms could finally go through, with more infrastructure projects to boost job creation and growth in 2016.

This, however, has brought attention to the sustainability of the government’s revenues. Indonesia’s tax amnesty plan was supposed to be implemented before 2016, but has yet to see the light of day.

Thus, the government plans to trim operational spending albeit “without harming growth.” BI’s consumer confidence index has dipped month-on-month from 112.6 to 110 for February due to concerns over job availability, but remained in optimistic territory.

Amid this backdrop, headwinds faced by Petra Foods last year, such as destocking by trade customers, could ease this year.

Meanwhile, expenses may be pared down by a small extent, in view of the continuous brand investments.

Overall, OCBC cautions that while the broader economic picture bodes well for Indonesia’s consumer sector, it may not necessarily equate to underlying sales growth for Petra Foods’ products. For instance, there were periods in 2015 when the group saw hefty sales decline despite stable private consumption.

“At this juncture, we still opt to remain cautious for now due to the lack of strong growth drivers. Meanwhile, we note that the share price has run up on thin volume,” notes OCBC.

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